Brokerage agreement: How to avoid common legal mistakes

A brokerage or agent contract is an agreement between two parties. The broker is tasked with mediating the conclusion of a transaction or at least initiating the opportunity for it. For the successful completion of this task, the broker receives a brokerage fee from the client – ​​in rarer cases, an expense allowance is also payable in the event of unsuccessful transactions.

In this article, we focus on real estate brokers. These can involve buying and selling, but also renting. Furthermore, there are brokers for jobs or for various commercial transactions or mortgages.

In law, the brokerage contract for real estate agents falls under the category of “simple contract” and is subject to its regulations. You can find the relevant paragraphs in the Swiss Code of Obligations (CO) starting in Article 394 under simple contract, or more specifically, in Article 412 under brokerage contract. In principle, a brokerage contract can be structured differently depending on the situation; however, it is always advisable to adhere to the written form.

A real estate agent searches for two suitable parties for a real estate transaction. Depending on who commissions the broker, the agent either looks for a suitable buyer for a property or for a suitable property for a client. In Switzerland, the former case predominates: Property owners commission a real estate agent to find a buyer for their house. The specific tasks a real estate agent performs depend primarily on the type of brokerage:

• Reference brokerage: In this case, the agent’s sole task is to find a suitable other party for the transaction. The client, however, contacts these people and takes care of the contract signing.
• Intermediary brokerage: In this case, the agent is not only responsible for finding and presenting suitable candidates but also drives the contract signing.

Generally, a real estate agent is responsible for negotiating the best terms for their client. If a real estate agent works for a landlord or seller of a property, they try to sell the property for the highest possible price. However, if the brokerage order comes from a person looking for a property to rent or buy, the broker will try to negotiate the rent or purchase price down as much as possible.

The brokerage agreement commissions the broker to conduct the brokerage business. The brokerage agreement—or brokerage contract, as it is called in the law—is treated as a simple contract (see Article 412, Paragraph 2 of the Swiss Code of Obligations).

A brokerage agreement can generally be tailored to individual needs. While written form is not required by law, it can be useful. This allows both parties to establish clear conditions. On the other hand, an oral agreement is equally valid. A brokerage agreement can even be concluded tacitly under certain circumstances.

In the case of non-written agreements, it is always difficult to prove them in the event of a dispute. Generally, for example, tacit acceptance of the brokerage transaction is considered accepted if the property seeker knows that someone is a broker and is searching for properties for them, and they tolerate this. Legally, this is ultimately difficult for both parties to prove.

Whether you want to hire a real estate agent to sell your house or find a suitable apartment for you, you should always document the details in a written real estate agency agreement. You can structure the agreement largely as you see fit, as it is form-free. It could include, among other things, the following points:

• Names of both contracting parties (real estate agent and client)
• Type of property or what is being sought
• Amount of commission (usually based on the value of the property)
• Responsibilities of the real estate agent (What type of real estate agency agreement is being issued? Providing agency or brokerage?)
• Reimbursement of expenses
• Is double agency permitted?
• Exclusivity (Can the client engage other real estate agents?)
• Duration of the agreement and termination conditions
• Are there any cantonal regulations?

Generally, brokers receive a commission for a successfully brokered or closed transaction. A broker may not demand their brokerage fee if the transaction has not yet been closed (see Article 413, Paragraph 2 of the Swiss Code of Obligations). However, a so-called reimbursement of expenses can be agreed upon in the contract. A reimbursement of expenses or an expense allowance guarantees the broker payment for the capital invested, even if the target has not been reached (see Article 413, Paragraph 3 of the Swiss Code of Obligations). This must be stipulated in the brokerage agreement and thus also accepted by the other contracting party. Among other costs, the following may be charged:

• Fuel costs
• Expenses
• Advertising fees

What may not be billed as compensation under any circumstances is working time. The reason for this is that brokerage is a commission-based business, and payment is based solely on the result. Even if the broker is successful, the number of hours of work ultimately is irrelevant – all that matters is the result, and once this is achieved, the broker is entitled to the full commission.

According to Article 415 of the Swiss Code of Obligations (OR), there is a situation in which a broker is not legally entitled to a salary. This is referred to as double brokerage. This basic principle states that a broker may not act for two opposing parties at the same time. For example, they may not work for the potential buyer of a property and the seller of the matching property and accept a fee from both for the brokerage.

There are, however, exceptions: In the case of proof brokerage, double brokerage may be permissible if the broker informs the client in advance. Of course, only if both parties have agreed to this. This consent cannot be obtained retrospectively.